The latest numbers from Dow Jones VentureSource seem to confirm that venture funding of Web 2.0 startups is slowing down and perhaps has even peaked. VCs put a record $1.34 billion into 178 Web companies last year. But Facebook accounted for fully 22% of the dollar amount, and the rise in the number of deals was only 25%, compared with a doubling every year before that since 2002. What’s more, Web 2.0 deals in the San Francisco Bay Area actually fell from 2006.
This could mean that VCs are sated with Web 2.0 investments, and from talking to few over the past several months, it definitely means some are shying away from the increasingly crowded and sometimes overvalued field. Then there’s the possibility that the tanking economy will hit online advertising, which most of the Web startups depend on, or expect to. Or maybe it’s the realization that exit opportunities are fading as the IPO market dries up, acquirers like Yahoo and Microsoft look distracted at best, and even Google’s stock can’t buy as much as it used to.
Entrepreneur John Furrier, however, wonders if it’s the Web startups who are weary of VC. After all, Web startups are very cheap to start, if not to scale to a reasonably large size. And a lot of them are funded by serial entrepreneurs who not only don’t need VCs’ money, they also don’t need their handholding.
It’s probably a little of both. But it’s just one more sign that even one of tech’s hottest sectors can’t defy gravity forever.